Opportunities and Challenges for Foreign brands to succeed in China Market

Data source from：China National Statistics Bureau

Achieving sustainable success in the complex and ever-changing Chinese market has been one of the toughest challenges for foreign brands. While success is getting harder again, China remains a vigorous market with big potential for global companies. Research finding shows that China will count for at least 25% of global economic growth in the next ten years. To succeed in the Chinese market, its critical for foreign companies to understand the new policy orientation and develop new winning strategies accordingly for the next five years.

The shift in global trade over the past two decades

Data source from IMF

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Analysis of key messages of the congress from the perspective of investment

The connotation of Chinese modernization economy, based on this new development concept addressed by the congress, we believe that the following aspects   are worthy of attention:

Bring the status of innovation to a new height of the "core position" and the "first driving force"

The congress emphasizes on building a modern industrial system and adhere to the development focused on the real economy. This means that China's support for scientific and technological innovation may be further scaled up, both in the fiscal and financial sectors. The congress vowed to promote the development of integrated strategic emerging industry clusters and build a number of new drives such as next-generation information technology, artificial intelligence (AI), biotechnology, new energy, new materials, high-end equipment and environmental protection. China will vigorously develop leading SMEs, encourage the introduction of foreign technology, especially in the field of high-tech manufacturing, and we can expect active cross-border cooperations in this field.

Data source from：Wind, CITICS (Securities)

Promote system-based opening-up and maintain diversified economic and trade relations

Specifically, this means to further improve the convenience and facilitate efficiency of various services in terms of foreign trade, foreign direct investment, and residence of foreign talents. This also means further easing market access for foreign investors and reducing the negative list for foreign investment. It involves not only foreign investment and trade in China, but also domestic companies' investment and trade abroad. This promotes fairer competition, anti-monopoly, market transparency and intellectual property protection, also lead to upgraded compliances of regulations.

Promote green development, speed up planning and building a "new energy system"

The congress emphasis on Green Development is welcome news for foreign companies in clean energy industry. China aims to build a new energy system, carry out carbon peak action, deepen the energy revolution, form a complete industrial chain of green and clean energy such as wind and PV power, and actively participate in global governance of climate change. Based on the World Bank, China will need estimated USD 14-17 trillion investment in power and transportation to achieve their goal of net zero emissions by 2060. This signals plenty of room for foreign technology and investments. Please click the link to see detailed story on Update on China Green Economy-Opportunities for Investments.

Digital Economy, further enable rural revitalization, industrial manufacturing, and urban development

Since 2020, "new infrastructure", namely investment in digital economic technology, has been placed in an important position. The scale of China's digital economy ranks among the world’s highest, growing to 45.5 trillion yuan in 2021, and the scale of e-commerce transactions and mobile payment transactions ranks top in the world. The report pointed out that China will continue to accelerate the development of the digital economy and industrial digitalization, promote the deep integration of the digital economy and the real economy, and build digital industrial clusters with global competitiveness. Please click the link to see detailed story on What’s up in China´s Digital Economy? Trends and Opportunities.

The scale of China's digital economy (trillion yuan)

Data source from：CAICT

Cultural sector, develop cultural programs and extend development of cultural industries

The congress promotes confidence, self-improvement, and the influence of Chinese culture. The deep integration of the metaverse and the real economy will also bring new opportunities to the existing business models and industrial forms of the current cultural and tourism market. As the core technology of the metaverse, WEB3.0 will show its greater value in the industry in the future.

Build a balanced and high-quality regional economic layout

Further promote the coordinated regional development and the new urbanization strategy, optimize the layout to achieve common prosperity. For example, in recent years, infrastructure construction and manufacturing industry have been expanded to the central and western regions, counties and towns. The development of new infrastructure has been accelerated, which is not only to avoid disordered regional competition, but also an important guarantee for China's industrial transformation and upgrading.

Financial and tax policies, accelerated digitalization and upgraded challenge of regulatory compliance

The 20th Congress identified key measures to further deepen the reform of the fiscal and taxation systems and proposed to "improve the modern budget system”, optimize the structure of the tax system, and improve the financial transfer payment system. Specifically, to strengthen the overall planning of resources and reduce the impact of economic fluctuations on local income, as well as to achieve the goal of regulating excessive income. China will use modern information technologies such as Internet and big data to strengthen supervision over the financial and accounting fraud.

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Outlook of foreign investors doing business in China

China's economy is still highly resilient and has great potential and vitality, and the economic fundamentals that will sustain long-term growth remain unchanged.According to the Ministry of Commerce, the actual use of foreign investment in China reached 1.15 trillion yuan in 2021. From January to September 2022, the actual use of foreign investment nationwide reached 1003.76 billion yuan ($155.3 billion), an increase of 15.6 % year-on-year.

Source from：Ministry of Commerce，qianzhan research institute

The congress mentioned National reunification by peace, which means it is the first choice in resolving the sources of systemic risk and geopolitical issues. Dynamic zero-COVID policy will continue be adopted while striving to achieve the official target of GDP around 5.5%. Based on Economist Intelligence forecast, the GDP growth in China is expected to be 3.3% for the year 2022, and 4.7% in 2023.

Followed the 20th National Congress, the 5th China International Import Expo (CIIE) was held on November 5. As a national import-themed expo, CIIE has built a platform for Sino-foreign cooperation. The cumulative transaction volume of the first four CIIE has reached more than 270 billion US dollars. In 2022, more than 10-billion-yuan investment deals have been nailed down cross the fields of medicine, manufacturing, digital economy, productive services, high-end equipment, new generation information technology, new energy and new materials for Shandong and Zhejiang provinces only. On the first day of the expo, PetroChina signed purchase agreements with 30 partners from around the world, including Saudi Arabia, Kuwait Petroleum Corporation, and GS-Caltex Corporation, with a total contract value of $16.79 billion.

New guidelines on investment directions of 20^th national congress

Source from：CITICS

The congress calls for win-win cooperation as the basis of "Chinese modernization". According to Shanghai-based mainstream financial media Yicai, executives of Danone, Johnson & Johnson, McDonald's and other multinational companies from various industries such as the advanced manufacturing, medicine, food, aviation, logistics, commodities, and construction materials have expressed their willingness to continue to invest in the Chinese market.

The 20th Congress set the tone of adhering to a high level of opening-up, aiming to create a first-class business environment to attract foreign investment and reduce the negative list of foreign investment access, protect the rights and interests of foreign investment in accordance with the law, eventually better nurture the high-quality development.

To better grasp the opportunities, it’s critical for foreign investors to gather necessary info and data for a thorough analysis on suitable investment strategies and the cross border cooperation model before making an overseas investment. If you are interested in exploring a variety of new models of cooperations with local partners, share resource, optimize structuring, mitigate risks, achieve synergy and win-win, please reach out to us.

With rich experience, Sirmione Consulting Group China-based team helps foreign investors further understand the future development direction of China's economy and the market, we can assist you from your virtual market presence, build your China business, establish partnership for you to accelerate your sales and expansion, eventually to achieve sustainable growth in China market.